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Economics 327
and so on, are assumed to lie outside the scope of economic theory which, in this
optic, is limited to very special relationships (mainly concerning patterns of
relative prices and relative amounts of products). The analytic apparatus of
static economic theory has reached a fairly high level of refinement (Walras).
This has been of considerable benefit to contemporary economics, but the sub-
ject-matter has remained limited to the factors which condition the equilibrium
of the system. Given a huge amount of ‘data’, and a number of simplifying as-
sumptions summarized in the notion of perfect competition, the investigator
could express the optimum in very simple terms: an equilibrium between de-
mand and supply within a pattern of relative prices that corresponds to marginal
costs, and a remuneration of the factors of production which corresponds to
their marginal productivity. The narrow framework of static analysis is apparent-
ly to be taken as exhausting the subject-matter of economics, although some
finishing touches may be added to the details of this perfectly logical construc-
tion. The ‘economic laws’ of static analysis are thus stated in unequivocal terms
and considered to be of general validity, irrespective of system or period. Fore-
most among these laws is the law of diminishing returns (or increasing marginal
substitution ratio, or marginal transformation ratio).79
The major inference from static analysis refers to something which is apparent-
ly considered as being beyond the scope of investigation: the institutional con-
ditions of the optimal allocation of resources. The logic of static analysis leads
inevitably to the conclusion that the conditions for optimal allocation can be
provided only by the free play of the classical market mechanisms, both in na-
tional economies and internationally (the principle of comparative advantage
providing a solid foundation for the international division of labour).
Despite its ostensible neutrality and its seclusion in the ivory tower of ‘pure’
and impartial theory, static analysis, as a general economic construction, has
always served important ideological purposes. This explains why it has persisted
so long despite the gulf that separates its assumptions fromreality andintervenes
between its methods and their verification.
There is no need to restate here all the convincing arguments that have been
advanced against the static theory of equilibrium and its corollaries. It may be
repeated, however, that to expose the essential weakness of the whole construc-
tion does not imply that it has made no contribution to economic theory. It has
certainly provided certain analytical tools. Its proper rejection as a general
theory should not induce us to abandon e.g. the concept of marginal magnitudes
or prevent us from assuming an increasing marginal substitution ratio when
taking decisions regarding the choice of technology at a given level of technical
knowledge and, even less, to reject the mathematical treatment of the inter-rela-
tions between all the magnitudes involved in an economic system, including the
co-efficients of inter-dependence (thus, Walras’ theory of general equilibrium is
one of the sources of Leontief’s widely used input-output method). Statics is one
of the moments of dynamics; although it is only a subordinate moment, it would
be unwise to ignore it.
Static equilibrium theory was briefly described above in order to emphasize
the tremendous broadening that has taken place in the subject-matter of eco-